Edited version of private ruling

Authorisation Number: 1011764084836

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Ruling

Subject: Residency

Question and answer:

Will you be a resident for taxation purposes when you leave Australia?

No.

This ruling applies for the following period:

1 July 2011 to 30 June 2016.

The scheme commenced on:

1 July 2011.

Relevant facts:

You were born in Australia and you are an Australian citizen.

You currently live in Australia with your parents.

You do not have a spouse.

You will depart Australia to live and work in another country.

You will live and work in the other country for several years and will then return to live in Australia.

No members of your family will accompany you overseas.

You do not own property in Australia.

You will be employed in the other country.

You will maintain connections with your family and friends in Australia while you are overseas.

You have no social or sporting connections with the other country at this time, but you expect to develop such connections while living in the other country.

You have never been an employee of the Commonwealth Government of Australia or been eligible to contribute to a Commonwealth superannuation fund.

You are over 16 years of age.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 995-1(1).

Income Tax Assessment Act 1936 subsection 6(1).

Reasons for decision

Section 995-1 of the Income tax Assessment Act 1997 (ITAA 1997) defines an Australian resident for tax purposes as a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

The terms resident and resident of Australia, in regard to an individual, are defined in subsection 6(1) of the ITAA 1936. The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. These tests are:

· the resides test,

· the domicile and permanent place of abode test,

· the 183 day test, and

· the superannuation test.

If any one of these tests is met, an individual will be a resident of Australia for taxation purposes.

The resides test is the primary test for determining the residency status of an individual. If residency is established under the resides test, the remaining three tests do not need to be considered.

If residency is not established under the resides test, an individual will still be a resident of Australia for taxation purposes if they meet the conditions of one of the other three tests.

The resides test

The resides test considers whether an individual is residing in Australia according to the ordinary meaning of the word 'reside'.

The Macquarie Dictionary, [Multimedia], version 5.0.0, 1/10/01 defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time'.

Taxation Ruling IT 2650 Income Tax: Residency - Permanent Place of Abode Outside Australia (which contains the Australian Taxation Office (ATO) view on whether an individual who temporarily leaves Australia ceases to be Australian resident for income tax purposes) specifies that a person's place of abode is where they live.

You will leave Australia to live and work in another country for several years. During this time you will not be considered a resident of Australia for taxation purposes under this test because your place of abode will be in the other country.

The domicile and permanent place of abode test

Under this test, a person whose domicile is in Australia will be considered a resident of Australia for taxation purposes, unless the Commissioner is satisfied the person's permanent place of abode is outside Australia.

A person's domicile is generally their country of birth. This is known as a person's domicile of origin. A person's domicile of origin will not usually change but can in some circumstances. For example, a person can acquire a domicile in another country by choice.

In order to acquire a domicile by choice outside of their domicile of origin, a person must have and be able to prove an intention to make their home indefinitely in a country outside their domicile of origin. Sufficient proof of such an intention is considered to exist in cases where a person becomes a citizen of a country outside of their domicile of origin.

IT 2650 specifies that a person with an Australian domicile who is living outside Australia will retain their Australian domicile if they intend to return to Australia on a 'clearly foreseen and reasonably anticipated contingency' - at the end of a specific period of time for example.

In your case, you were born in Australia and you are an Australian citizen. Accordingly, your domicile of origin is Australia.

You will retain your Australian domicile while you are living and working in the other country because you intend to return to Australia within several years from the date you leave Australia.

As a result, you will be a resident of Australia for taxation purposes under the domicile and permanent place of abode test unless the Commissioner is satisfied your permanent place of abode is outside Australia.

IT 2650 specifies that a permanent place of abode does not have to be everlasting or forever and does not mean an abode in which a person intends to live for the rest of their lives.

IT 2650 also specifies that a period of two or more years is generally considered sufficient to support the establishment of a permanent place of abode outside of Australia and that an intention to return to live in Australia permanently does not prevent a taxpayer setting up a permanent place of abode elsewhere in the meantime.

In your case, we consider you will establish a permanent place of abode in the other country because:

You will to live and work in the other country for several years before returning to Australia.

Your family, with whom you reside in Australia, are not accompanying you to the other country. Accordingly, it can be said you will abandon your home in Australia and will establish a home in the other country.

You will retain your Australian domicile while you are in the other country. However, the fact that you will establish a permanent place of abode in the other country means you will not be a resident of Australia for taxation purposes under this test while you are living and working in the other country.

The 183-day test

Where a person is present in Australia for 183 days during an income year, the person will be a resident of Australia for taxation purposes unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and the person does not intend to take up residence in Australia.

In your case, you will live and work in the other country for several years and do not intend to reside in Australia during that time. Based on this, and the fact that we consider you will establish a permanent place of abode in the other country during the period you live and work there, you will not be a resident of Australia for taxation purposes under this test during that time.

The superannuation test

Under this test, a person will be considered to be a resident of Australia for taxation purposes if they are eligible to contribute to, or are a member of either the Commonwealth Superannuation Scheme or the Public Sector Superannuation Scheme (Commonwealth superannuation funds).

A person will also be considered to be a resident under this test if they have a spouse who is eligible to contribute to, or is a member of these funds, or if they are a child under 16 of such a person.

You do not have a spouse, you are over the age of 16, and you are not eligible to contribute to these Commonwealth superannuation funds as you have never been an employee of the Commonwealth. Accordingly, you are not a resident of Australia for taxation purposes under this test.

Conclusion - your residency status

When you leave Australia to live and work in the other country you will not satisfy any of the tests of residency outlined in subsection 6(1) of the ITAA 1936. Accordingly, you will not be an Australian resident for taxation purposes during the period you are in the other country.